Archives for April 2012

April 2012 - Page 10 of 13 - Money Morning - Only the News You Can Profit From

Election 2012: The Real Reason President Obama Wants the Buffett Rule

A new report from the White House today argues that making America's richest (those making over $1 million) pay a tax rate of at least 30% is more a basic issue of "tax fairness" than a way to generate lots of new revenue to the debt-saddled U.S. government.

The tax proposal is dubbed the Buffett Rule, named for its main backer, billionaire Warren Buffett, who says it is unfair that he pays a lower effective tax rate than his secretary. The Buffett Rule ensures millionaires and billionaires do not pay lower percentages of their income than middle-class citizens.

U.S. President Barack Obama, on a campaign fund raising trip, spoke in favor of the Buffett Rule yesterday (Tuesday) in Florida. Democrats are now working on a bill that would incorporate the Buffett Rule into the current tax code, with support from the White House.

The proposal is set for a vote next week in the Senate, and the president has made it a principal element of his plan for deficit reduction.

The White House says the Buffett Rule would make it more difficult for the nation's wealthiest to lower their tax bills and would ultimately make the tax code fairer for everyone.

Critics, however, say it is nothing more than a political ploy in the months leading up to the 2012 presidential election.

The Buffett Rule: Key Campaign Tool in Election 2012

The Buffett Rule is a key theme in President Obama's re-election campaign.

Republicans object to the Buffet Rule as a punitive tax hike on rich that will have little impact on the federal deficit. If the GOP succeeds in blocking passage of the Buffett Rule, the president can paint the Republicans as advocates of an unfair tax policy that benefits only the country's most prosperous citizens.

White House officials acknowledged Monday that the controversial Buffett Rule would yield just $47 billion in additional tax revenue over a decade. That amounts to a paltry 0.6% of the $7 trillion in federal deficits projected for that 10-year period.

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Why Gold Prices Should Thrive

Last week was a challenging one for gold investors. Gold prices have been on the downside.

Although the yellow metal has been on a spectacular 11-year bull run, recent strength in the economy has some thinking gold's heyday is over.

As I often say, investing, like life, is about managing expectations-even throughout gold's decade-long rise, price action over the short term can go both ways.

It helps to look at what happens after short-term drops.

For example, looking at the past decade of one-day 5% declines in gold, you can see that this event is pretty rare.

In 2006, gold dropped more than 5% in a day only two times. In 2008, there were three such events.

Another one occurred at the end of this February. Take a look:

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Investing in Guns Stocks: Boom Times for Sturm Ruger (RGR) and Smith & Wesson (SWHC)

The gun business is booming.

Uncertainty about the upcoming election and a sluggish economy has Americans buying guns and ammo by the truck load.

In fact, business is so good they can't make enough of the stuff.

Even though actual sales data is hard to come by, the industry's biggest players are saying business has never been so good.

Gun stocks are up big as a result.

"Many indicators, including a record-setting 2011, show the firearms industry continues to thrive in a down economy and that the potential exists for another strong sales year in 2012," the National Shooting Sports Foundation (NSSF) said at its annual trade show.

The NSSF said that 920,840 instant criminal background checks were made in January, an unprecedented 20th-straight month of year-over-year increases. The January number comes on the heels of nearly 1.5 million checks in December — the most ever for any month.

The actual number of guns sold is often much higher, as private transfers and sales from gun shows are exempt from background checks.
In fact, one major manufacturer reported that business is too good.

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Is Groupon (Nasdaq: GRPN) the Next Enron?

Is Groupon the next Enron? … No. It's worse.

Before the company even went public, there were signs that internal financial controls weren't up to snuff.

Now I'm hearing refrains of "three blind mice" as "defrauded" investors line up to have their day in court. You might as well say the "dog ate my homework."

It's not like no one knew this was coming.

The U.S. Securities and Exchange Commission (SEC) made management redo Groupon's financial statements and accounting practices not once, but twice before the company's January 2011 initial public offering (IPO).

The first time involved including the cost of marketing in operating income – duh. The second was to force the company to deduct merchant payments from revenues – double duh!

Both are basic accounting principles.

If you spent $2 to gain $1 in orders you have to report that as a $1 loss if you're dealing with cold, hard cash. Also, if you have $1 in merchant payments, you can't count that as $2 in revenues, unless apparently you work at Groupon and love accrual accounting.

It's not like Groupon execs can claim they didn't know.

It's abundantly clear to me that the "company" has very little, if any, understanding of REG FD and securities litigation.

(REG FD, in case you are not familiar with it, is short for Regulation Fair Disclosure which the SEC adopted Aug. 15, 2000. REG FD is intended to eliminate selective disclosure of material non-public information.)

But I have a hunch they're going to find out the hard way.

Groupon's "Material Weakness"

When the SEC came knocking again on April 2nd the company was forced to restate its Q4 financials. That summarily reduced Groupon's revenue by $14 million and profits – assuming there were any to begin with – by $22.6 million.

In an official statement, Ernst & Young, the company's primary auditor, noted "material weakness" with regard to the company's internal controls. Investors simply noted that they'd better get going while the going was good.

Groupon's share price tumbled 16.87% Monday alone and is down 55% from its peak.

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Weight Loss Stocks: ARNA, VVUS, and OREX Race to End the Obesity Epidemic

Obesity is considered the most serious health issue in the developed world. Along with growing waistlines also comes ballooning costs.

Across urbanized nations, the economic burden of obesity is estimated to be 10% of total health care costs, with projections continuing to grow as the obesity epidemic spreads.

For investors, that means weight loss stocks are poised to gain.

Here's why.

When it comes to obesity the statistics are staggering.

Currently 35.7% of U.S. adults, or more than one third, is obese. According to the Centers for Disease Control (CDC), that's a giant increase over just ten years ago.

In 2000, not a single U.S. state had an obesity rate of 30% or more. Today, 12 states have crossed that obesity threshold.

The costs attributed to obesity are estimated at $147 billion and rising.

Weight Loss Stocks: ARNA, VVUS and OREX

It is no wonder pharmaceutical companies are racing to fill the void and close the growing gap in treating this mounting epidemic.

Two leaders early in the game include Arena Pharmaceuticals Inc. (NASDAQ: ARNA) and Vivus Inc. (NASDAQ: VVUS) A third California-based company, Orexigen Therapeutics Inc. (NASDAQ: OREX), is also vying for Food and Drug Administration approval.

All three hope to bring to the market the first weight loss treatment in some 13 years.

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Using Options to Make a Quick Profit on J.P. Morgan (NYSE:JPM) Earnings

It's earnings season again!

Among the most eagerly awaited results will be the financial earnings, many of which are still struggling to fully recover from the 2008-2009 financial collapse.

The projections released so far look pretty rosy.

First up is J.P. Morgan Chase & Co. (NYSE: JPM). The heavily watched investment bank reports this Friday the 13th.

According to Zacks Investment Research, J.P. Morgan will earn $1.14 a share versus just 90 cents in the final quarter of 2011.

Other financial earnings winners projected by Zacks include:

  • Citigroup Inc. (NYSE: C) expected to report earnings of 98 cents next Monday, up from 38 cents the prior quarter;
  • Goldman Sachs Group Inc. (NYSE: GS) projected to report $3.22 next Tuesday, up from $1.84 last time;
  • Morgan Stanley (NYSE: MS) expected to report 47 cents on Thursday, April 19, up from a loss of 14 cents in the last quarter.

Of course, life isn't totally golden for all the financials. A few are expected to release less-than-stellar results.

They include:

  • Wells Fargo & Company (NYSE: WFC) which also reports on Friday the 13th (is that a bad omen?), is expected to show flat results – 72 cents a share versus 73 cents last quarter;
  • Bank of America Corp. (NYSE: BAC) is projected to see a drop from 15 cents to 12 cents when it reports April 19.

The point is, the mixed projections reflect the fact there's still a lot of uncertainty surrounding the outlook for the financials.

Even those with good numbers this time could face storm clouds ahead.

The Financial Earnings Season Game Plan

For starters, J.P. Morgan, Citigroup, Wells Fargo and BofA, along with Ally Financial Inc., all face future hits thanks to the $25 billion settlement reached in February regarding foreclosures and malfeasance in handling mortgages left worthless by the housing crisis.

J.P. Morgan must also pay new federal penalties as a result of a settlement last week in the civil suit over actions it took that helped lead to the collapse of Lehman Brothers in 2008.

On the other hand, Wells Fargo, JPM, BAC and many others could get a significant boost from the new and improved version of the Home Affordable Refinance Program (HARP 2.0) adopted last month.

So, given all this, how can you hope to profit from any move in the financial stocks in the wake of their upcoming earnings releases?

Obviously, simply buying the stocks ahead of the reports is not the answer.

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Alcoa (NYSE: AA) Kicks Off First Quarter Earnings Reports That Could Put Brakes on Market Rise

Investors will get a front row preview to the first quarter earnings season when bellwether Alcoa Inc. (NYSE: AA) reports its results Tuesday after the close.

The aluminum producer is the first major U.S. company to release its first quarter earnings report, and these closely watched results often set the tone for the earnings season.

But investors shouldn't get their hopes up – expectations for first quarter earnings are low.

Earnings growth for the first three months of 2012 was lackluster at best – even though the stock market produced some of the best quarterly market gains since 1998. The Dow rose some 8%, the Standard & Poor's 500 Index gained 12%, and the NASDAQ nearly climbed a whopping 19%.

If this latest batch of earnings comes with a plethora of nasty and unwelcome surprises, the recent market rally could be derailed.

Sam Stovall, chief equity strategist at S&P Capital told the Associated Press, "It's supposed to be a very weak quarter, but Wall Street is freaking out because they don't understand why."

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Tech News: Facebook (NASDAQ: FB) Scores Big with Both AOL Patent Sale and Instagram Deal

Facebook Inc. (NASDAQ: FB) topped the tech news today (Monday), benefitting from both a record-making deal with photo-sharing network Instagram, and an AOL Inc. (NYSE: AOL) patent sale.

Facebook announced Monday it would pay $1 billion in cash and stock for photo-sharing app maker Instagram.

The Instagram deal is Facebook's biggest ever in both price and reach. Instagram has more than 30 million active users – which it accumulated in just 18 months – the most of any startup that Facebook has bought.

"We don't plan on doing many more of these, if any at all," Facebook CEO Mark Zuckerberg wrote in a blog post Monday, speaking to the size and scope of the deal. "But providing the best photo sharing experience is one reason why so many people love Facebook and we knew it would be worth bringing these two companies together."

Instagram, the most popular way for iPhone users to take and share photos, was named iPhone app of the year in 2011. Its features allow picture takers to alter the size, color and style of photographs.

The Android Instagram app debuted last week to a frenzied audience, with millions downloading the app immediately.

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How Political Spin Skewed the U.S. Jobs Report

The stock market – closed Friday for a holiday – had a chance today (Monday) to react to the March employment report – and fell in morning trading.

Although job gains continued in March, they were about 90,000 short of what was expected. Money Morning Chief Investment Strategist Keith Fitz-Gerald joined Fox Business’ “Varney & Co.” program Monday morning to take a closer look at the U.S. jobs report.

Fitz-Gerald detailed why investors need to look beyond the unemployment rate drop at more telling numbers – data the White House would like you to ignore.

Watch this video of Fitz-Gerald with “Varney & Co.” host Stuart Varney to find out what you need to know about the U.S. jobs report, and how it could affect the markets and economic recovery.

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